Independent Advisor Optimism Down Sharply Says Schwab Institutional Study

Wednesday, March 5, 2008 5:15 am PST

Dateline:

SAN FRANCISCO

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NASDAQ:
SCHW
"The fact that only 18 percent of advisors say their clients needed reassurance during the last six months is a testament to the strong relationships that investors have with their advisors"

SAN FRANCISCO--(BUSINESS WIRE)--Advisors are much less optimistic about the U.S. economy, according to the latest Schwab Institutional study of independent registered investment advisors. Forty-one percent of advisors surveyed in the second half of January say the S&P will fall in the next six months, as compared to just 18 percent who felt that way in July 2007. And although Federal Reserve Chairman Ben Bernankes approval rating with advisors declined measurably down to 61 percent from 80 percent in 2007 advisors appear to approve of the 75-basis-point interest rate cut on January 22. In the days following that move, 36 percent of advisors expected the S&P to experience a downturn over the next six months, compared to 44 percent who felt that way prior to the cut.

Schwab Institutional is a leading provider of custodial, operational and trading support for more than 5,500 independent investment advisors. The semi-annual Independent Advisor Outlook Study (study) measures the views of independent Registered Investment Advisors (RIAs) on a variety of topics. More than 1,000 independent investment advisors with $231 billion in total assets under management participated from January 17-28, 2008.

Other economic findings:

  • Eighty-one percent of advisors say it is likely the housing market will continue to soften.
  • More than twice the advisors in the current study (78 percent vs. 35 percent in July) believe unemployment will increase in the next six months.
  • A large percentage of advisors expect energy prices to decrease (42 percent vs. 24 percent in July) in the months to come.
  • Sixty-two percent also anticipate a rise in inflation in the next six months, up from 53 percent in July.

"The fact that only 18 percent of advisors say their clients needed reassurance during the last six months is a testament to the strong relationships that investors have with their advisors," said Bernie Clark, senior vice president of Schwab Institutional. Advisors tend to take a long-term view and are known for their steady hand. While more than half feel it will be more challenging to achieve their clients investment goals in the current market environment, they are keeping their eyes and strategies focused on the long-term horizon.

Clark said the study also revealed that about one-quarter of advisors say their clients either postponed selling a home (26 percent) or discussed postponing retirement (23 percent). More than half (51 percent) say their clients have experienced real property loss in the last 12 months. Two-thirds of advisors (67 percent) say their clients are concerned about the impact of the sub-prime mortgage issue on their portfolios.

Hunger for Conservative Investments

In the face of market volatility, advisors continue to view large cap stocks from both the U.S. and developed international markets as their preferred equity investments and expect to maintain or slightly increase their investments. Plans to invest more in fixed income and cash showed a notable increase as well, and for good reason: 51 percent say their clients have asked for more conservative investments in the past year. Interest in fixed income allocations has risen from 18 percent in July to 27 percent, and nearly twice as many advisors now say they will invest more in cash (28 percent vs. 16 percent in July) in the next six months. ETFs are also increasing in popularity: 82 percent of advisors say they currently invest in ETFs, and 36 percent plan to increase their investments in ETFs during the next six months.

The study showed that healthcare is expected to be the top performing sector in the next six months (at 46 percent, up from 33 percent in July), while consumer staples (35 percent, up from 21 percent in July) and energy (35 percent, down from 41 percent in July) tied for second place. Utilities, many of which pay cash dividends, surged to third place (at 30 percent, up from 11 percent in July).

Internationally, Hong Kong ranks number one (35 percent) as advisors pick for the top performing developed international market during the next six months, with Singapore in the number-two spot with 32 percent, and Japan and Australia tied for third with 23 percent. Notably, Japan has decreased 17 percentage points in advisor favor in the last 12 months; in January 2007, advisors overwhelming named Japan as their expected top performing market (40 percent). On the emerging markets front, advisors expect the top four markets to be China and India (tied at 36 percent), Brazil (33 percent), and for the first time since the launch of this study, Russia (23 percent).

United We Stand

Although the traditionally divisive political season is upon us, more advisors now believe the U.S. will become more united in the next six months (14 percent vs. 7 percent in July). Not surprisingly, advisors say the U.S. economy and war in Iraq will be the top issues for the 2008 presidential election, followed by healthcare and immigration. Only four percent of advisors believe social security is a top issue for this presidential race. A candidates race or gender was at the bottom of the list.

About Schwab Institutional

Schwab Institutional is a leading provider of custodial, operational and trading support for independent investment advisors. As of December 31, 2007, client assets custodied with Schwab Institutional stood at $583 billion. These assets, managed by the approximately 5,500 independent advisor firms Schwab Institutional currently serves, represent approximately one-third of total client assets custodied with The Charles Schwab Corporation. Brokerage products offered by Schwab Institutional are not FDIC insured, are not guaranteed deposits, and are subject to investment risk, including the possible loss of principle invested. Schwab Institutional is a division of Charles Schwab & Co., Inc.

The Independent Advisor Outlook Study, conducted for Schwab Institutional by Koski Research in January 2008, has a 3.15% margin of error. Koski Research is not affiliated with nor employed by Charles Schwab & Co. Inc. Detailed findings can be found at http://www.aboutschwab.com/media/pdf/advisoroutlook.pdf.

About Charles Schwab

The Charles Schwab Corporation (Nasdaq:SCHW) is a leading provider of financial services, with more than 300 offices and 7.1 million client brokerage accounts, 1.3 million corporate retirement plan participants, 286,000 banking accounts, and $1.4 trillion in client assets. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, http://www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through its Schwab Institutional division. The Charles Schwab Bank, (member FDIC) provides banking and mortgage services and products. More information is available at www.schwab.com.

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Contact:

Charles Schwab
Alison Wertheim, 415-636-5812
alison.wertheim@schwab.com

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